Daily Forex Signals 13.04.2017
EUR/USD: Trump shows that Draghi is not the only jawboning master
Macroeconomic overview: President Donald Trump said that his administration will not label China a currency manipulator, backing away from a campaign promise, even as he said the U.S. dollar was "getting too strong" and would eventually hurt the economy. The United States last branded China a currency manipulator in 1994. Under U.S. law, labeling a country as currency manipulator can trigger an investigation and negotiations on tariffs and trade.
In an interview with The Wall Street Journal, Trump also said he would like to see U.S. interest rates stay low, another comment at odds with what he had often said during the election campaign.
The U.S. dollar fell broadly on Trump's comments on both the strong dollar and interest rates.
Trump's comments broke with a long-standing practice of both U.S. Democratic and Republican administrations of refraining from commenting on policy set by the independent Federal Reserve. It is also highly unusual for a president to address the dollar's value, which is a subject usually left to the U.S. Treasury secretary.
Trump also told the Journal that he respected Federal Reserve Chair Janet Yellen and said she was "not toast" when her current term ends in 2018. That was also a turnaround from his frequent criticism of Yellen during his campaign, when he said she was keeping interest rates too low. At other times, however, Trump had said that low rates were good because higher rates would strengthen the dollar and hurt American exports and manufacturers.
Technical analysis: The EUR/USD rose and close above 7-day exponential moving average yesterday (1.0640). Today’s close above this level would strengthen our short-term bullish expectations. The 21-day moving average is next resistance at 1.0713.
Short-term signal: We stay long for 1.0715 and raised the stop-loss to 1.0615.
Long-term outlook: We have changed our long-term outlook to slightly bullish. USD reaction to Trump’s comments shows that ECB governor Mario Draghi is not the only jawboning master in the market. What’s more, the ECB will probably start to think about ending its accommodative policy soon.
AUD/USD: Sharp rebound on Trump comments and jobs data
Macroeconomic overview: The AUD bounced sharply on Thursday, having been thrown a lifeline by U.S. President Donald Trump who undermined his own currency by saying it was too strong.
The AUD got an added boost from upbeat readings on employment at home and trade in China where both exports and imports beat expectations.
Data from the Australian Bureau of Statistics showed the jobless rate held at a 13-month peak of 5.9%, in line with expectations. Yet employment leapt 60.9k, far exceeding anticipation of a 20k increase. The highly volatile series showed that the gain was led by a 74.5k jump in full-time jobs, reversing a year-long decline during which all the increase in positions were for part-time ones.
That turnaround will be welcomed by the Reserve Bank of Australia, which this month sounded a new note of caution on the labour market, fearing it could keep wages, and thus inflation, at uncomfortably low levels.
Leading indicators of labour demand have generally been more positive. A measure of business conditions surged to a nine-year high in March with sturdy trading conditions and employment holding at a 16-month high while profitability was just shy of a recent two-year peak. A gauge of consumer confidence was also above long-term average.
Technical analysis: The AUD/USD broke above 7-day and 14-day exponential moving averages. A close above these levels would be a bullish sign. The next resistance level is 50% fibo of March-April fall at 0.7610.
Short-term signal: Our AUD/USD long opened at 0.7505 is in good shape now. We think this currency pair should recover soon given improving fundamentals of Australian economy and returning risk appetite. We have raised our target on this position to 0.7670.
AUD/JPY: We see that risk appetite is improving and this should result in higher AUD/JPY rate. We have placed AUD/JPY bid at 82.50.
Long-term outlook: We expect AUD/USD and AUD/JPY to rise in the long term.
USD/CAD: Bank of Canada turns less dovish
Macroeconomic overview: The CAD strengthened to a six-week high against the USD after the Bank of Canada turned less dovish, while comments by U.S. President Donald Trump weighed on the USD.
The Bank of Canada did not even consider cutting interest rates as it left monetary policy unchanged on Wednesday amid signs of strong growth, but it is too early to conclude the economic growth is sustainable, Governor Stephen Poloz said.
Sounding less dovish than in January, when he said policymakers discussed a possible rate cut, Poloz said the bank was "decidedly neutral" even as it raised its growth forecast for 2017.
"Given the data that we've seen in the last few months, I can quite clearly say no, a rate cut was not on the table at this time," Poloz told a news conference.
Reiterating its position that material excess capacity remains in the economy, the central bank nudged up its growth forecast for 2017 but lowered its projection for potential growth to reflect "persistently weak investment."
Taken together, the outlooks mean the bank now projects the output gap to close in the first half of 2018, sooner than the mid-2018 date predicted in January.
In a report that noted a weakness for every strength, the bank said business investment remains well below what could be expected at this stage in the recovery and wage growth remains subdued, while residential investment has been stronger than expected.
In later testimony to a parliamentary committee, Poloz said it would be wrong for the bank to try to offset market factors driving the Canadian dollar, but acknowledged that a weaker currency is "selectively good" for some sectors, making exports more competitive but increasing input costs.
Poloz said speculative forces are at work in Toronto's hot housing market, noting that prices, which rose 33% in March from a year earlier, are divorced from fundamentals. The Teranet-National Bank Composite House Price Index, which measures changes for repeat sales of single-family homes, showed prices rose 0.9% last month. It was the largest March increase in 10 years, the report said. Compared with a year ago, prices jumped 13.5%, the biggest 12-month increase since November 2006. Prices in Toronto were up a record 24.8% from a year ago.
Senior Deputy Governor Carolyn Wilkins emphasized that while the bank sets policy independently of the Fed, which has begun hiking rates, higher U.S. rates will have an impact.
The Bank of Canada will likely maintain its wait-and-see stance on monetary policy until early next year.
Technical analysis: The USD/CAD broke below two important support levels: 1.3312 (61.8% fibo of last year’s drop) and 1.3248 (50% fibo of January-March rise). This is an important bearish signal and suggests further drop.
Short-term signal: We opened a short at 1.3280 in yesterday’s Trading Strategies Summary with the target at 1.3120.
Long-term outlook: Bearish
TRADING STRATEGIES SUMMARY:
FOREX - MAJOR PAIRS:
FOREX - MAJOR CROSSES:
How to read these tables?
1. Support/Resistance - three closest important support/resistance levels
2. Position/Trading Idea:
BUY/SELL - It means we are looking to open LONG/SHORT position at the Entry Price. If the order is filled we will set the suggested Target and Stop-loss level.
LONG/SHORT - It means we have already taken this position at the Entry Price and expect the rate to go up/down to the Target level.
3. Stop-Loss/Profit Locked In - Sometimes we move the stop-loss level above (in case of LONG) or below (in case of SHORT) the Entry price. This means that we have locked in profit on this position.
4. Risk Factor - green "*" means high level of confidence (low level of uncertainty), grey "**" means medium level of confidence, red "***" means low level of confidence (high level of uncertainty)
5. Position Size (forex)- position size suggested for a USD 10,000 trading account in mini lots. You can calculate your position size as follows: (your account size in USD / USD 10,000) * (our position size). You should always round the result down. For example, if the result was 2.671, your position size should be 2 mini lots. This would be a great tool for your risk management!
Position size (precious metals) - position size suggested for a USD 10,000 trading account in units. You can calculate your position size as follows: (your account size in USD / USD 10,000) * (our position size).
6. Profit/Loss on recently closed position (forex) - is the amount of pips we have earned/lost on recently closed position. The amount in USD is calculated on the assumption of suggested position size for USD 10,000 trading account.
Profit/Loss on recently closed position (precious metals) - is profit/loss we have earned/lost per unit on recently closed position. The amount in USD is calculated on the assumption of suggested position size for USD 10,000 trading account.